Course 404: Aggressive-Growth Stocks
How Does the PEG Ratio Compare with Those of Similar Firms?
In this course
1 Introduction
2 Is Cash Flow in Line with Earnings?
3 Has Growth Hurt the Balance Sheet?
4 What Are the Trends in Growth Rates?
5 How Consistent Is the Company's Growth?
6 Are Free Cash Flows Positive or Negative?
7 How Much Does the Company Earn on Its Capital?
8 How Has the Stock Performed?
9 How Expensive Is It?
10 How Does the PEG Ratio Compare with Those of Similar Firms?
11 Conclusion: Knowing the Odds

What investors are really paying for when they buy shares of Starbucks is future growth. The PEG ratio, or a stock's forward P/E divided by the firm's projected earnings-growth rate, is a good way to compare the price of growth across firms. Starbucks' PEG ratio of 1.8 (as of January 2000) meant that its P/E exceeds its estimated five-year growth rate by 80%. But the average aggressive-growth stock had a PEG of 2.9, so again, Starbucks doesn't look so expensive.

Next: Conclusion: Knowing the Odds >>

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